(12) STOCK-BASED COMPENSATION

The Company recognized the following amounts in employee stock-based compensation costs for the three months ended March 31, 2017 and 2016:


	For the three months ended
	March 31,
	2017		2016
	(in millions)
Stock-based compensation cost – expensed (1)	$	6	$	23
Stock-based compensation cost – capitalized	$	4	$	3

(1)

Includes $18 million related to the reduction in workforce for the three months ended March 31, 2016.

In January 2016, the Company announced a 40% workforce reduction that was substantially completed by the end of March 2016. In April 2016, the Company also partially restructured executive management, which was substantially completed in the second quarter of 2016. Affected employees were offered a severance package that included, if applicable, amendments to certain outstanding equity awards that modified forfeiture provisions on separation from the Company. As a result, certain unvested stock-based equity awards became fully vested at the time of separation. These shares were revalued and recognized immediately as a component of restructuring charges on the Company’s unaudited condensed consolidated statements of operations. The unvested portion of equity-based performance units was forfeited upon separation from the Company.

As of March 31, 2017, there was $96 million of total unrecognized compensation cost related to the Company’s unvested stock option grants, restricted stock grants and performance units. This cost is expected to be recognized over a weighted-average period of 3 years.

Stock Options

The following table summarizes stock option activity for the three months ended March 31, 2017 and provides information for options outstanding and options exercisable as of March 31, 2017:


	Number		Weighted Average
	of Options		Exercise Price
	(in thousands)		(per share)
Outstanding at December 31, 2016		5,416	$	23.46
Granted		1,322		8.59
Exercised		–		–
Forfeited or expired		(17)		45.57
Outstanding at March 31, 2017		6,721		20.48
Exercisable at March 31, 2017		3,537	$	29.34

Restricted Stock

The following table summarizes restricted stock activity for the three months ended March 31, 2017 and provides information for unvested shares as of March 31, 2017:


	Number		Weighted Average
	of Shares		Fair Value
	(in thousands)		(per share)
Unvested shares at December 31, 2016		3,321	$	11.85
Granted		4,549		8.59
Vested		(70)		13.45
Forfeited		(113)		10.05
Unvested shares at March 31, 2017		7,687	$	9.93

Equity-Classified Performance Units

The following table summarizes performance unit activity for the three months ended March 31, 2017 to be paid out in Company stock and provides information for unvested units as of March 31, 2017. The performance units awarded in 2013 and 2014 included a market condition based on relative Total Shareholder Return (“TSR”) and a performance condition based on the Company's Present Value Index (“PVI”), collectively the “Performance Measures.” The fair value of the TSR market condition is based on a Monte Carlo model and is amortized to compensation expense on a straight-line basis over the vesting period of the award. The fair value of the PVI performance condition is based on economic analysis for each investment opportunity based upon the expected present value added for each dollar to be invested and amortized to compensation expense on a straight line basis over the vesting period of the award. The performance unit awards granted in 2015, 2016 and during the first quarter of 2017 are based exclusively on TSR. The grant date fair value is calculated using the applicable Performance Measures and the closing price of the Company’s common stock at the grant date.


	Number		Weighted Average
	of Units (1)		Fair Value
	(in thousands)		(per share)
Unvested units at December 31, 2016		719	$	11.46
Granted		1,197		10.47
Vested		–		–
Forfeited		–		–
Unvested units at March 31, 2017		1,916	$	10.84

(1)

These amounts reflect the number of performance units granted in thousands. The actual payout of shares may range from a minimum of zero shares to a maximum of two shares contingent upon the actual performance against the Performance Measures. The performance units have a three-year vesting term and the actual disbursement of shares, if any, is determined during the first quarter following the end of the three-year vesting period.

Liability-Classified Performance Units

Prior to 2013, certain employees were provided performance units vesting equally over three years, payable in cash. The payout of these units was based on certain metrics, such as total shareholder return and reserve replacement efficiency, compared to a predetermined group of peer companies and Company goals. At the end of each performance period, the value of the vested performance units, if any, would be paid in cash. In the first quarter of 2016, the Company completed the final payout under these performance unit agreements.